If we are using FIFO or Specific Identification Inventory valuation method having Periodic or perpetual Inventory system does not matter and COGS/INVENTORY would be same under both systems. In case of LIFO or Weighted Avg. Cost, it would be differant for Periodic/perpetual system. My question is In Schweser notes, they have given definitions of Periodic/perpetual systems, i have found it difficult to visualise. Can someone here post example and helkp me understand what happens under FIFO and LIFO? Thanks in advance.
Under perpetual system, inventories values and costs of sales are continuously updated to reflect purchases and sales. Therefore, the amount of costs of good available for sale allocated to cost of sales and ending inventories is similar under the FIFO and weighted average cost method. The difference is you need the last purchase to price your LIFO inventories. Periodic investory system = inventories values and costs of sales are determined at the end of the accounting period. Then, the 3 methods yields differents valuation of inventories and COGS.
Ok so you mean , under LIFO Perpetual System while calculating COGS, u would select the material Cost for the period immediately preceding the Valuation which is done continous and run backwards. In Periodic you start valuing for COGS at specified intervals (lets say Q1,Q2,Q3,Q4) and hence cost of COGS comes from the period Q1 (just prior purchase preceing Q1). Hence LIFO will be different. In FIFO this problem does not come since we start valuing the Inventory which came into warehouse , which would be same for both situations above. Am I right here?